Realistic exchange rates : a post-Asian Financial Crisis perspective

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Book chapter

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Twenty-first century world order and the Asia Pacific: Value change, exigencies, and power realignment

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The next section will examine two cases of true currency crisis. I argue that currency crises need not be a result of excessive short-term borrowing, lack of fiscal discipline, excessive money supply growth, or crony capitalism. While any one of these factors, acting on its own or in conjunction with others, will erode investors’ confidence and prompt a currency crisis, perfectly “straight economics” could also run into trouble. Hong Kong is a case in point. Hong Kong’s currency crisis in 1997 belongs to the true crisis category even though it was well-behaved fiscally and its financial institutions followed all the basic rules of prudence. The Thai baht debacle, on the other hand, provides a case of true currency crisis arising from excessive short-term borrowing coupled with a link to the U. S. dollar. The third section will examine two cases of apparent currency crises. The Malaysian and the Singapore economies were hit by currency devaluation pressures in 1997, not withstanding strong economic fundamentals and a dearth of evidence that their currencies were grossly overvalued. The fourth section will present the Japanese yen as a case of disguised currency crisis. The yen has been floating all along, and pressure were mounting for it to appreciate rather than depreciate. Yet it had, over the years, appreciated to such levels that its economy stagnated. What all this means is that neither a floating exchange rate regime—with or without bands—nor a fixed exchange rate regime will free us from the threat of currency crisis. The conclusion argues that it is in the interest of the international financial community to maintain exchange rates at sustainable or defendable rates. A concerted effort, through a mechanism fully supported by all the world’s major economies, should be made to protect such exchange rates.

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Copyright @ James C. Hsiung, 2001. Access to external full text or publisher's version may require subscription.

Additional Information

ISBN of the source publication: 312238797



Recommended Citation

Ho, L. S. (2001). Realistic exchange rates: A post-Asian Financial Crisis perspective. In J. C. Hsiung (Ed.), Twenty-first century world order and the Asia Pacific: Value change, exigencies, and power realignment (pp. 329-339). New York: Palgrave.

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